ZiG: Zimbabwe’s New Gold-Backed Currency Blighted by Trust Issues

ZiG: Zimbabwe’s New Gold-Backed Currency Blighted by Trust Issues

Zimbabwe’s new gold-backed currency, ‘ZiG,’ has been dogged by issues of trust. Economists say that fixing broken trust, and not a new currency, will stabilize the economy.

ZiG, short for Zimbabwe Gold, was unveiled by the Reserve Bank of Zimbabwe (RBZ) in April as a measure to contain high inflation. This move marks the sixth attempt in 15 years to introduce a new currency, following multiple failures that resulted in significant losses for citizens’ savings.

In 2009, the Zimbabwean government legalized the use of several foreign currencies, including the U.S. dollar and the British pound, to combat hyperinflation, which had reached 79.6 billion percent monthly. However, Zimbabweans have since been trapped in a cycle where a surrogate local currency erodes their U.S. dollar deposits before being replaced by a new currency.

Announcing the ZiG on April 5, RBZ Governor John Mushayavanhu stated, “Banks shall convert the current Zimbabwe dollar balances into the new currency which shall be called Zimbabwe Gold (ZiG) to foster simplicity, certainty, and predictability in monetary and financial affairs.” The ZiG is backed by $575 million in gold, foreign currency reserves, and other minerals. Its name is derived from a gold-backed digital token issued by the central bank, known as GBDT.

Mushayavanhu introduced ZiG as inflation hit a seven-month high of 55% in March, with the previous Zimbabwean dollar losing 80% of its value since its 2019 reintroduction. Critics argue the official inflation data is understated, with economist Steve Hanke measuring the annual inflation rate at 1,191%, the highest in the world.

The new currency will co-circulate with other foreign currencies until 2030. Mushayavanhu hopes ZiG will help stem inflation and restore savings lost during past financial crises. However, the transition to ZiG has been chaotic. Transport operators, retailers, and other traders initially rejected the old currency, effectively making the U.S. dollar the only accepted currency for a period. This led to arrests of illegal street forex dealers and bank account freezes for businesses refusing to accept ZiG at the official exchange rate.

Former opposition MP Fadzayi Mahere criticized the new currency as another unsustainable government fix for inflation. She highlighted the selective enforcement of currency acceptance, questioning why some entities like fuel stations and state universities are exempt from penalties for not accepting ZiG.

Economist Gift Mugano condemned the central bank’s directive to convert company funds into ZiG-denominated bonds, calling it “command economics” and a violation of property rights. He argued that such measures worsen the trust and confidence needed for ZiG’s acceptability.

As Zimbabwe navigates the transition to ZiG, the focus remains on whether the new currency can overcome the deep-seated mistrust and economic instability that have plagued the country for years.

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